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Greening Industry: New Roles for Communities, Markets and Governments

This PRR was first printed in October, 1999.

Greening Industry shows how recent economic and regulatory policy reforms are reducing industrial pollution in developing countries, without threatening economic growth. After many failed attempts to import regulatory models from the industrial countries, pioneers are developing a new model for pollution control. Based on sound economic principles, it incorporates market-based incentives, a broad commitment to public environmental information, and targeted assistance to managers who are trying to improve environmental performance. The new model stresses participatory regulation, with community representatives taking their place at the negotiating table along with government regulators and factory managers. With much better public information about pollution, market agents also make their presence felt through the decisions of consumers, bankers and stockholders.

The World Bank has been very fortunate to collaborate with the pioneers of this new approach, in which communities themselves negotiate with polluting factories to achieve the clean air and water that their physical and economic health demand.

David Wheeler, a senior World Bank economist and the author of the report, interview with David Dollar, lead author

The authors of Greening Industry write about this model as participant-observers, because they have helped establish many of the innovative programs they discuss. Since 1993, they have collaborated with pioneers of the new model in Indonesia, Colombia, China, Brazil, Philippines, Mexico and other countries.

Environmental regulators in developing countries are trying fresh approaches because conventional command-and-control regulation hasn't worked well. Some have turned to financial incentives by charging polluters for every unit of their emissions. Recent experience with pollution charges in Colombia, China and Philippines has shown that managers opt for serious pollution control when they face steep, regular payments for emissions.

Other environmental reformers are using simple rating systems to publicly recognize clean factories and focus scrutiny on heavy polluters. PROPER in Indonesia and EcoWatch in Philippines have sharply reduced pollution from hundreds of factories which successfully resisted conventional regulation. Similar programs have begun in Mexico, China and India. Public disclosure works through many channels, including "informal regulation" by communities, investor preference for clean firms, and consumer preference for green products. Public information about the sources and impacts of pollution has particular benefits for poor communities.

The new approaches are working because they have a solid economic foundation. Cost-minimizing plant managers will generally tolerate emissions up to the point where the expected penalty for pollution becomes greater than the cost of controlling emissions. Pollution charges and public disclosure both operate through expected penalties, while other programs reduce emissions by lowering the cost of abatement. For example, recent pilot projects in Mexico have shown how to reduce pollution at modest cost through targeted training in environmental management for small and medium enterprises.

At the national level, economic reforms can also reduce pollution. Greater openness to trade can enhance managers’ access to cleaner technology, while cutting subsidies for raw materials can encourage companies to reduce waste. State-owned enterprises are often heavy polluters, so privatization can contribute to cleaner production. Countries as diverse as China, India and Brazil have demonstrated the power of such measures to reduce pollution. But economic reforms are no panacea, because growth-promoting measures can make local pollution worse in some cases. To ensure sustainable development, economic reformers should anticipate such impacts and work closely with environmental agencies to offset them.

The new approaches to pollution control give policymakers more options, but they also impose new responsibilities -- for strategic thinking about the benefits and costs of pollution control; a strong commitment to public participation; clever, focused use of information technologies; and willingness to try new approaches such as pollution charges and public disclosure. Of course, regulators will continue to have important responsibilities for monitoring factories' environmental performance and enforcing regulations.

The report includes a CD-ROM which provides a large set of reference materials, databases and audio-visual presentations. An Internet version of Greening Industry will be featured on the DECRG Website, "New Ideas in Pollution Regulation" (http://www.worldbank.org/nipr/). It also provides extensive links to related Internet sites.




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